Hi all! Typically, when one starts comparing different online payment providers, the conversation starts with the rate that the operator charges for completing the transaction. Today we will talk about this parameter and try to analyze it in detail. The transaction cost (discount rate) for a Trade and Service (TSP) enterprise is usually set as a percentage of the payment amount, and sometimes a fixed amount is added to the percentage. In this case, a commission is charged for a successful authorization operation, and, in some cases, may also be charged for a rejected one. Refunds and chargebacks may be subject to additional fees.
In Russia, it is generally customary to take a percentage of the transaction amount for successful authorization. Abroad, a fixed amount is often added to interest, and the fixed amount can be broken down into individual operations (authorization, clearing, etc.). High-risk merchants are often charged both a fee for a rejected transaction and an additional cost for refunds and chargebacks.
So, the payment authorization rate consists of:
Let's look at these concepts in more detail!
Before 1971, when a Bank A cardholder made a purchase at a merchant serviced by Bank B, the entire merchant discount was passed on to Bank A. In effect, this rule meant that the Acquiring Bank did not make any profit on transactions on cards from other issuers. Visa did the same thing as MasterCard.
Now Interchange Fee is installed by Visa and MasterCard payment systems. IF has complex pricing that depends on the type of card used (classic, premium, etc.), regions and jurisdictions, credit or debit card, merchant type and size, and transaction method (online, MOTO phone, etc.). d.). For example, IRF rates for premium cards will typically be higher than for classic cards. And credit card transactions will be higher than premium transactions. In-person sales, such as phone or online orders, typically have higher interchange rates than in-person (POS) transactions. It is also important to note that interchange rates are a mechanism for encouraging the issuance of cards of a certain brand.
If there were no IF, the issuing bank would have to cover the costs of servicing the cards (costs such as fraud prevention, equipment maintenance, cardholder support). In this case, the bank will either increase the cost of servicing the cards for the holder or stop using them altogether.
IF rates vary by region and jurisdiction, and more specifically, by the location of the acquirer and issuer. There are local, intra-regional and inter-regional IF rates:
Transactions that cross the border of one country are called cross-board. For example: the acquirer is located in Latvia, the issuer is in Russia. Such transactions will be interregional for Visa (regions Visa Europe, CEMEA), and intraregional for MasterCard (transactions between sub-regions of Western and Eastern Europe).
By the way, in the Russian Federation it is common practice to state, if something happens, that “Visa/MasterCard are American companies. All questions should be addressed to them!" In fact, issues regarding Russia are resolved by Russian banks, the participants of the IPS, just as the regulation of interchange fees is entirely on their conscience. Banks benefit from high IF rates - they earn money from each transaction.
In the countries of the European Union and In Australia, reduction (regulation) of IF was sought through the courts. For example, in 2015, the European Commission approved a decision to reduce IF for MasterCard between EU members to 0.2/0.3% for debit/credit cards.
In Russia, the average interchange for e-commerce transactions with. 3D Secure is about 1.6% But the rates vary between payment systems. For example, MasterCard openly publishes its 3D-Secure support on the side of both the issuing bank and the acquiring bank.
For Russia, after the construction of the NSPK, Visa and MasterCard published their domestic Russian commissions:
Visa: www.visa.com.ru/common/pdf/Visa_Payment_System_Fees_Guide_Russia.PDF
Mastercard: www.mastercard.com/ru/company/ru/_assets/pdf/Tariffs.pdf
For example, the clearing cost for an acquirer with a total monthly number of transactions of less than 50 thousand for a transaction of less than 5 euros is 0.0080 EURO = 0.64 RUB (at the rate of 1 EURO = 80 RUB). This is why many acquirers and issuers reject authorizations for small amounts (less than a few rubles), since such transactions become unprofitable for them.
But if the commission for authorization within one country amounts to hundredths of a percent of the transaction amount, then for cross-border transactions the Ministry of Railways already imposes significant commissions. For example, the commission for an interregional Visa transaction can be 0.4% (the so-called cross-border fee).
That is, in fact, Visa/MasterCard play the role of banks, since in the first case you buy currency, and in the second you sell it.
Thank you for reading to the end, I will be glad to answer any questions.
In Russia, it is generally customary to take a percentage of the transaction amount for successful authorization. Abroad, a fixed amount is often added to interest, and the fixed amount can be broken down into individual operations (authorization, clearing, etc.). High-risk merchants are often charged both a fee for a rejected transaction and an additional cost for refunds and chargebacks.
So, the payment authorization rate consists of:
- interchange fee (commission returned to the bank that issued the card)
- commission charged by International Payment Systems
- markup of the acquiring bank and agents (if any).
Let's look at these concepts in more detail!
Interchange fee (IF)
It was introduced in 1971 by Visa (then National Bank Americard Inc) for transactions in which different banks acted as issuer and acquirer. This commission was paid by the Acquiring Bank to the Issuing Bank and was initially 1.95% . And the acquiring bank could set the acquiring rate (merchant discount rate) higher than the interchange fee in order to cover its expenses and make a profit.Before 1971, when a Bank A cardholder made a purchase at a merchant serviced by Bank B, the entire merchant discount was passed on to Bank A. In effect, this rule meant that the Acquiring Bank did not make any profit on transactions on cards from other issuers. Visa did the same thing as MasterCard.
Now Interchange Fee is installed by Visa and MasterCard payment systems. IF has complex pricing that depends on the type of card used (classic, premium, etc.), regions and jurisdictions, credit or debit card, merchant type and size, and transaction method (online, MOTO phone, etc.). d.). For example, IRF rates for premium cards will typically be higher than for classic cards. And credit card transactions will be higher than premium transactions. In-person sales, such as phone or online orders, typically have higher interchange rates than in-person (POS) transactions. It is also important to note that interchange rates are a mechanism for encouraging the issuance of cards of a certain brand.
If there were no IF, the issuing bank would have to cover the costs of servicing the cards (costs such as fraud prevention, equipment maintenance, cardholder support). In this case, the bank will either increase the cost of servicing the cards for the holder or stop using them altogether.
IF rates vary by region and jurisdiction, and more specifically, by the location of the acquirer and issuer. There are local, intra-regional and inter-regional IF rates:
- Local (domestic/intra-country) – the acquirer and issuer are located in the same country.
- Inner-regional – the acquirer and issuer are located within the same region.
- Interregional (intra-regional) – the acquirer and issuer are located in different regions.
Transactions that cross the border of one country are called cross-board. For example: the acquirer is located in Latvia, the issuer is in Russia. Such transactions will be interregional for Visa (regions Visa Europe, CEMEA), and intraregional for MasterCard (transactions between sub-regions of Western and Eastern Europe).
By the way, in the Russian Federation it is common practice to state, if something happens, that “Visa/MasterCard are American companies. All questions should be addressed to them!" In fact, issues regarding Russia are resolved by Russian banks, the participants of the IPS, just as the regulation of interchange fees is entirely on their conscience. Banks benefit from high IF rates - they earn money from each transaction.
In the countries of the European Union and In Australia, reduction (regulation) of IF was sought through the courts. For example, in 2015, the European Commission approved a decision to reduce IF for MasterCard between EU members to 0.2/0.3% for debit/credit cards.
In Russia, the average interchange for e-commerce transactions with. 3D Secure is about 1.6% But the rates vary between payment systems. For example, MasterCard openly publishes its 3D-Secure support on the side of both the issuing bank and the acquiring bank.
Fees
For each “set” of IFs, there is a set of IPS fees for various operations. By the way, MPS takes a commission not only for authorization operations from the acquirer, but also for various operations from the issuer. MPS rates are quite low, and the authorization fee can be hundredths of a percent of the total amount. Their distinctive feature is that the authorization fee is fixed and depends on the size of the amount and the number of transactions. In most cases, commissions are closed; moreover, the IPS rules prohibit acquirers from disclosing them to third parties.For Russia, after the construction of the NSPK, Visa and MasterCard published their domestic Russian commissions:
Visa: www.visa.com.ru/common/pdf/Visa_Payment_System_Fees_Guide_Russia.PDF
Mastercard: www.mastercard.com/ru/company/ru/_assets/pdf/Tariffs.pdf
For example, the clearing cost for an acquirer with a total monthly number of transactions of less than 50 thousand for a transaction of less than 5 euros is 0.0080 EURO = 0.64 RUB (at the rate of 1 EURO = 80 RUB). This is why many acquirers and issuers reject authorizations for small amounts (less than a few rubles), since such transactions become unprofitable for them.
But if the commission for authorization within one country amounts to hundredths of a percent of the transaction amount, then for cross-border transactions the Ministry of Railways already imposes significant commissions. For example, the commission for an interregional Visa transaction can be 0.4% (the so-called cross-border fee).
Finally
The Internet acquiring rate is almost always lower in the country whose bank cards you accept (cross-border fee, interregional interchanges, etc.). Moreover, if a company works with the Russian market (its counterparties are also located in Russia), and the acquiring bank is in Europe, the company also loses on double currency conversion:- Write off RUB -> convert to EURO.
- We convert EURO -> pay in RUB with counterparties.
That is, in fact, Visa/MasterCard play the role of banks, since in the first case you buy currency, and in the second you sell it.
Thank you for reading to the end, I will be glad to answer any questions.
